Peter J. Daniel, Senior Vice President and Controller, Ford ...

PeterJ. Daniel Senior Vice President & Conlrdler

September 18,2006

Nancy M. Morris Secretary Securities and ExchangeCommission I00 F Street, NE Washington, DC 20549-1090

Re: Concept Release -Request for Cornmimi(File No. 57-11-061

Dear Ms. Morris,

Ford Motor Company is pleasedto respond to theabove-referenced release regarding t h ~ Commission's efforts to providepractical guidance for companies in order to improve implementationof Sarbanes-Oxley Section 404. We have comments in regardto five of the questions included in the release: 1)use of entity-level controls in testing to reduce transaction-level testing, 2) reliance on evidence based on ongoing monitoringof controls rather than separate evaluation-type testing, 3) timing of managementtesting and the need to perform update testing, 4) definition of the terms "sign5ficant deficianw and "material weakness". and 5) situationswhere a restatement would not lead to a conelusibnof a material weakness.

Question I9-What tvpe of suidance would helo explain how entitv-level controls can reduceor 1 provide saecifc examples of types of entitv-level corrtrols hat have been useful in reducinq testinq elsewhere.

We believethat guidance on entity-levelcontrols should ident i the types of entity-levelcontrols appropriate!to reduce testing af the individual account or transaction level. This shoJ d indude the scope of entity-level controls, how often they should be pe~orrnedand what the relationship of entity-level controls must be to the transaction-level controls. This guidance should provide exa'mpfesbf entity-lev4 controls and specify the testing requiremenis for those controls.

In our opinion, examples of entity-level controls that have been important in establishing effective control include a consistent '"tone at the top" regarding the importanceof effective controls, regutar management reviews of audit and control issues at boththecorporate levd and at the business group level, the establishmentof processesto effectivelymanage changes to business processes and applications, and an increased emphasis on financial skills training for employees whose job responsibilities impact the financial statements.

Question 20 -Would quidance on how mansqement's assessment can be based on evidence other than that derived from separate evaluation-tv~etestina of controls, such as on-soirrq monitorina a;ctivities. be useful? What are some of the sources of evidence that companies find most useful in anaoinq monitorins of control effectiveness? Would s u i d a n ~ be usefulabout how manwernsnPsdaily interaction with controls can be used toSUDMits assessment?

We believethat guidance in this area would be useful. The guidance should includea definition of acceptable an-going manitbring activities and the frequency and nature of management interactionwifh those adiivities. This would facilitate the identification of existing monitoring activities that are acceptable, as well as allow for the development of new tools and processes that .wouldbe more efficient than evaluation-typetesting.

Based on our experience, the sources of evidence that we find useful in monitoring controls include elements of both analysis and governance, In the analysis area, we utilize variance analyses such as mrnparisons of actual to forecast results and period-to-period comparisons of account balances. The use of ratios,comparing key resewes and ac~rualsto operating data such as volume andlor revenue, and periodic reviews of balance sheet accounts are also helpful as analytical monitoringtools. In the governance area, the regular reviewof key conlrol rnetrics such as the percentage of internalaudits with no comments, the types and number of comments being identifiedby internal audit and by operations and managementtesting, and theamount of time requiredto resolve control deftciencies allow management to prioritize both resource utilizationand specific control initiatives.

Question 23 -Would rruidance be useful on the tirnins of rnanasement testina of contrds and the need to update evidence and conclusions from ~ r i o rtest in^ to the assessment "as of"date?

Yes, such guidancewould be-useful. SpecIficalIy, guidance is needed regarding the appropriate timing of update testing relativeto both the date that testing of a control was performedeartier in the year and to the assessment "as df"date. In addition, guidanm regardingthe timing of the occurrence of the data used to perform update testing would be helpful.

Question 25 - Would nuidancebe hel~fulresardina the definition of the terms "material weaknessn and "shnficant deficiency"? If so, please explain anv issues that should be addressed in the suidance?

Yes, additional guidance is neededwifh respect to defining "material weakness* and"significant deficiency", particularly in circumstanceswhere a company has low or near breakeven pre-tax results. Guidance also should be provided on quantitative fhresholds for a "material weakness" and "signifimnt deficiency" for conboldeficiencies that affect only balance sheet classification and the cash flow statement. Also, the concept of evaluating potentla1 risk for quantiftedfinancial statementerrors that resultedfrom a conhi deficiency shwld be clarified.

The presently accepted quantitativethresholds for a "material weaknessaanda "significant deficiencynfor an i n m e statement misstatement are based on percentagesof pre-tax profits. In periods of low or breakeven pietax results, these percentageswould result in very low thresholds that should not repiesen€a "significant deficiencf or a "material weakness" when other factors such as the size and complexity of a company are considered. Consideration, therefore, shwld be given to establishing alternative quantitativethresholds during these periods. These alternative thresholds could be based on the conceptof a fixed minimum quantitafivethreshold or a less volatile financial "tiasis" then pre-tax results such as revenue.

Apart from the issue raised in the precedingparagraph, the recommendedquantitative thresholds for assessing deficiencies in control-related income statement items have been very helpful. We are nd,however, aware of any recommendedquanfitive thresholds for deficiencies in controls relatedto balance sheet or cash flow statement classifications. Just as the quantitative thresholds for income statementrelated controls have been helpful. we believesuch thresholds would provide more uniform and objecthe standards applimble to all companies.

Additionally, the concept of attempting to quantify the maximum probable risk of a control deficiency beyondthe quantitativeamount actually determinedto have resulted from that deficiency should be clarifid. Deficiencies in controls that resuti infinancial statement errors are identifiedby managementthrough the operation of a variety of different controls. The financial effect of control deficiencies may not be identifiedby higher-level controls until it has reachedan amount, often over time, which the cuntrol is designed to identify. Where a control has identified a financial error that has existed for some time and the amount of the issue has increased to the level that the control identified it, we believe that the actual amount of the error is the amount that should be considered as the potential risk. Engaging in a conceptual discussion of how large the financial error could have been if the mnlrol had not detected the error should not be necessary because the company% controls identified the error.

The evaluation of potential risk, however, is appropriate ifa control deficiency is identified without a financial statement error actually occurring, or if the error is identifiedbyan outside party such as the external auditor.

Question 27 - Would ~uidance be useful in addressinq the circumstances under which a restatementof a~eviouslvreportedfinancial infmation would not lead to the oonclusion that materialweakness exists in the company's internal control over financial re~ar t in~?

Yes, guidanceon when a restatementof financial infmationwould not be considered a material weakness would be useful. Specificexamples of situationsH e r e a restatement would not result in a materialweakness should be provided. For exampie, would a materialweakness exist when a company has to restate previously reportedfinancial information because it has interpreteda complex accounting palicy incorrectly, and its external auditor had not previously identified an issuewith that incorrect accounting p d i w

We appreciate the opportunityto provide our comments on this matter and should you have any questions, please feel free to contact me by telephone at 313-845-7938.

Best Regards,